October 28, 1999

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

Re: File No. S7-19-99

Dear Secretary Katz:

In response to your recent publication of the draft "pay-to-play" rules, we make the following comments and suggestions. Although we applaud your efforts to eliminate inappropriate and undue influence in the awarding of money manager contracts and other pension fund business, we must sound a strong cautionary note. Clearly, the regulatory reach of the SEC should not extend beyond that minimally necessary in order that fundamental rights of citizens are not impaired. Freedom of expression, for example, is a fundamental constitutional guarantee and the right to make campaign contributions should not be abridged unless doing so is critical to preserving the integrity of the economy.

Furthermore, any regulatory approach must be even-handed in its application, and treat all candidates and prospective candidates fairly. In addition, we would encourage the SEC to abide by the old adage, "First, do no harm." In that vein, it seems that your proposed regulations could be made more effective if they were more flexible. For example, as we read the draft rules, it appears that the only disciplinary action available to the SEC is a 2-year ban on service providers. This seems unduly harsh, and could result in few, if any, disciplinary actions being taken since the choices are...do nothing or impose the death penalty! It would seem to be more rational if some sort of monetary fine system were available. Then, transgressions could be punished commensurate with the level of offense.

The SEC should consider modifying the definition of "official" so as to cover those situations where authority for certain decisions is delegated to staff-as is the case with the State Board of Administration (SBA) in Florida. In effect, build in a safe harbor for such situations. The SEC should also carefully consider the consequences of applying the rule to private equity funds. It seems that there may be some inadvertent but harmful

Jonathan G. Katz
October 28, 1999

Page 2

consequences to pension plans if these funds are forced to prematurely redeem their investments. Finally, we are aware that there are numerous unregistered advisors who provide financial services who are regulated by states. Should these folks be covered in some fashion?

Hopefully, these comments will prove helpful in re-drafting the "pay-to-play" rules. If we can be of any further assistance, please feel free to call.


Tom Herndon